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Better equipped to protect rupee: FM

Chidambaram: Confident

New Delhi, Dec. 19: India is better prepared than before to protect the rupee from the consequences of the US Federal Reserve’s tapering of its monetary stimulus, finance minister P. Chidambaram said today.

A surge in currency reserves and a curb on gold imports are expected to deter any speculative run on the rupee. Besides, more currency swap deals are expected to give the RBI enough room to borrow dollars to prop up the rupee.

“The government is of the view that markets had already factored in the US Fed’s decisions and therefore is not likely to be surprised by these moderate changes. Besides we are better prepared than in May 2013 to deal with the consequences,” said Chidambaram.

The Federal Reserve last night said it would scale down its monthly bond purchases by $10 billion to $75 billion a month. The minister described it as a “mild reduction” and pointed out to the absence of any “sequential reduction”.

The rupee did fall slightly by 0.1 per cent to trade around 62.19. In contrast, when earlier fears of tapering had sent currency markets around the world into a topsy-turvy downward spiral, the rupee had plunged to an all-time low of 68.80 on September 28, a fall of 25 per cent in just five months.

Analysts said India was far better prepared to defend the rupee against any run on the currency. Said Anindya Banerjee, currency analyst with Kotak Securities: “The Indian rupee weakened on the back of broad-based weakness amongst the Asian and emerging market currencies against the dollar. However, an improved current account outlook and active intervention from the central bank mean that the rupee might not weaken the way it did in summer. We expect a range of 61 to 64 to play out over the medium-term, with markets within 61.70/63.30 range for most of that time.”

Added Amit Johri, an independent merchant banker handling Hong Kong-based funds, “We also note that India has fewer short term debt pay-backs on the radar now than in May-September when the rupee was on a free–fall. Overall we feel the rupee is the least likely of BRICS currencies to be impacted by the Fed decisions.”

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